Venezuela & More

With the Middle East becoming increasingly unstable, it raises the question: should an operation to remove Nicolás Maduro's government in Venezuela be considered to secure another source of crude oil for when the Persian Gulf becomes too risky? While this may sound neo-imperialist, it’s a valid point. The Persian Gulf accounts for about 20 million barrels of crude oil per day, and any significant conflict involving Iran or Saudi Arabia would disrupt a substantial portion of that output. Even if oil fields in the UAE and Saudi Arabia remain undamaged, and bypass pipelines to the Red Sea operate at full capacity, we’re still looking at roughly 12 to 13 million barrels per day being at severe risk.

From a supply perspective, increasing crude output from Venezuela is a solid idea. Historically, during the original OPEC oil embargoes, Venezuela didn’t participate, which helped cushion the global oil market and eventually broke the embargo’s impact. Having Venezuela in play could provide much-needed relief. However, the reality is far more complex.

Challenges with Venezuelan Oil

First, the U.S. is not the country that would spearhead such an operation. While U.S. refiners do prefer heavy crude, Venezuela has been an unreliable producer for over a decade. Most U.S. refineries have retooled to use other sources because Venezuelan oil cannot be consistently relied upon. Even during Hugo Chávez’s early years (around 2007), very few U.S. refineries processed Venezuelan crude. Today, U.S. refiners avoid it entirely due to its inconsistency and the lack of reliable supply.

Second, Venezuela’s oil industry has suffered extreme neglect. The Maduro regime—like Zimbabwe under Mugabe—has driven the country into the ground. Infrastructure is in ruins, reservoirs are damaged, and refineries are in such poor condition that chunks of debris are reportedly found in gasoline. Venezuela, once a food exporter, now imports 80% of its food. To restore oil production to levels seen just five years ago, a $40–50 billion investment would be required upfront. Even then, production would only reach about a million barrels per day.

Venezuela’s fields are also technically challenging. The crude is very heavy and sour, requiring specialized expertise. Only a few companies, such as Chevron and Conoco in the U.S., or operators in Canada’s oil sands, have the capability to manage it. However, Canadian companies typically don’t operate outside their own oil sands projects. Building the expertise needed to rehabilitate Venezuela’s fields would be an immense task.

Political and Security Barriers

The political situation in Venezuela further complicates matters. The country is essentially a kleptocracy, not a socialist or communist state. The western region of Maracaibo, once a major oil hub, is now lawless, plagued by piracy, and heavily anti-Maduro. Offshore wells in the region are in decline. In the southern Orinoco Belt, the crude is even heavier and more technically challenging, with much of it no longer accessible due to infrastructure collapse.

Restoring basic security would require significant resources, including a minimum deployment of 50,000 troops. Compounding the problem is Venezuela’s dense population of armed civilians, a legacy of Chávez’s policy of distributing AK-47s to secure loyalty. Stabilizing the country would be an immense challenge, even if locals were generally supportive of external intervention.

The U.S. Perspective

For the U.S., the idea of a military intervention to secure oil is far-fetched. The U.S. is now a net exporter of crude oil and refined products, with exports expected to exceed 5 million barrels per day this year—greater than the total crude production of most countries in history. There’s simply no incentive for the U.S. to get involved in Venezuela, especially when its own energy independence is secure.

The European Angle

Europe, however, might have more motivation. With Russia off the table as a reliable supplier and the Middle East unstable, Europe may look to Venezuela as an option. Alternatives like Libya and Nigeria come with their own risks: Libya is essentially a stateless zone, and Nigeria’s size and corruption make imposing external control unfeasible. For Europe to intervene in Venezuela, they would need U.S. approval due to the Monroe Doctrine. Securing such approval would require significant concessions, and it’s unclear if Europe has anything to offer that the U.S. values highly enough.

Think About It

While the crude potential in Venezuela is undeniable, the logistical, political, and economic barriers make any intervention highly unlikely in the near term. It’s an interesting theoretical exercise, but not something we’re likely to see this decade. By the next decade, however, with shifting global dynamics, anything could be on the table.

When discussing the Biden administration's impact on U.S. oil production, it's important to lay out the specific roadblocks that have emerged over the past few years. Despite America's position as a leading oil producer and exporter, several policy decisions and regulatory shifts have created significant headwinds for the industry. These moves may not have crippled production entirely, but they’ve added layers of complexity, cost, and uncertainty that inevitably slow growth.

Federal Leasing Moratoriums and Restrictions

One of the most immediate actions President Biden took upon entering office was placing a moratorium on new oil and gas leases on federal lands and waters. While this was framed as part of a broader effort to combat climate change, it sent a clear signal to the oil industry that federal lands were no longer a reliable avenue for development. The Biden administration has since resumed some lease sales, but the pace is sluggish, and the terms are less favorable. For example, royalty rates have been raised significantly, increasing costs for producers. Even when leases are offered, the administrative hurdles and legal battles that follow make it harder for companies to develop these resources efficiently.

The restrictions extend offshore as well. The Gulf of America, a critical hub for U.S. oil production, has faced delays in lease sales and uncertainty about long-term access. This has a chilling effect on investment because offshore projects often require years of planning and billions of dollars in upfront capital. Without a predictable framework, companies are hesitant to commit.

Regulatory Overreach

The regulatory landscape under the Biden administration has also tightened significantly. The Environmental Protection Agency (EPA) has introduced stricter methane emission rules targeting oil and gas operations. While reducing methane leaks is a laudable goal, the rapid implementation of these rules has caught many smaller producers off guard, forcing them to either invest heavily in compliance technologies or shut down operations. Large companies can absorb these costs more easily, but for smaller operators, the financial strain is much harder to manage.

Beyond methane, there have been efforts to overhaul permitting processes under the National Environmental Policy Act (NEPA). The changes require more extensive environmental reviews for projects, which adds time and cost to the approval process. This affects not just drilling permits but also infrastructure projects like pipelines, which are critical for transporting oil to refineries and export terminals. Without adequate pipeline capacity, production bottlenecks become a significant issue, leading to wasted resources and lost revenue.

The Keystone XL Pipeline

No discussion of roadblocks would be complete without mentioning the cancellation of the Keystone XL pipeline. This project, designed to transport heavy crude from Canada to U.S. refineries on the Gulf Coast, had been in limbo for years before Biden officially revoked its permit on his first day in office. Proponents of the pipeline argued it would enhance North American energy security, provide jobs, and support the refining of heavier crudes that many Gulf Coast facilities are optimized to process. Its cancellation symbolized a broader shift away from fossil fuel infrastructure under this administration, discouraging investment in similar projects.

Banking and Investment Pressure

While not directly a policy of the administration, the Biden administration's broader rhetoric on climate change has aligned with efforts to discourage investment in the fossil fuel industry. By emphasizing a transition to renewable energy and pledging to cut emissions, the administration has contributed to a financial environment where banks, investors, and insurance companies are increasingly hesitant to support oil and gas projects. This has manifested in higher borrowing costs and reduced capital availability for many producers, particularly for projects that are seen as long-term ventures.

Now, I am going to talk briefly about the Strategic Petroleum Reserve (SPR) and Mixed Signals; however, I’ll elaborate in detail about our Strategic Petro Reserve because it’s something every investor must know a bit about.

Another complicating factor has been the administration’s use of the Strategic Petroleum Reserve (SPR). In response to high gas prices and global supply disruptions, the Biden administration released record amounts of oil from the SPR. While this provided short-term relief for consumers, it also created uncertainty for domestic producers. Flooding the market with government-controlled oil undermines prices, reducing the incentive for private companies to ramp up production. At the same time, the administration has called on OPEC and other foreign producers to increase their output, which many in the industry see as contradictory to the goal of boosting U.S. energy independence.

Judicial and Political Challenges

Some of the roadblocks are less about direct policy and more about the broader political and legal environment. The Biden administration has faced lawsuits from environmental groups seeking to block drilling projects, and in many cases, the administration has chosen not to fight these challenges aggressively. This creates a perception that the federal government is not fully supportive of the oil and gas industry, further discouraging investment.

Additionally, there is ongoing uncertainty about the long-term direction of U.S. energy policy. While the administration has made significant investments in renewable energy through initiatives like the Inflation Reduction Act, it has not provided a clear and consistent message about the role of oil and gas in the transition. This lack of clarity makes it harder for companies to plan for the future.

Think About It

Taken together, these roadblocks create a challenging environment for U.S. oil producers. Federal leasing restrictions, regulatory overreach, pipeline cancellations, and mixed signals about energy policy have all contributed to an atmosphere of uncertainty and increased costs. While the U.S. remains a top oil producer, the policies of the Biden administration have undoubtedly slowed the industry's growth potential. Looking ahead, the question is whether these roadblocks are temporary or indicative of a long-term shift away from fossil fuels.

The Strategic Petroleum Reserve (SPR) is the world's largest emergency crude oil stockpile, established by the United States in 1975 in response to the 1973–1974 Arab oil embargo. This event exposed the nation's vulnerability to oil supply disruptions, prompting the creation of the SPR to mitigate future crises. The reserve comprises four sites along the Texas and Louisiana Gulf Coasts, with a combined capacity of up to 727 million barrels stored in deep underground salt caverns.

Historically, the SPR has been utilized to address significant supply interruptions. For instance, in 1991, during Operation Desert Storm, the U.S. released 17 million barrels to stabilize markets amid Middle East tensions. Similarly, in 2005, after Hurricanes Katrina and Rita disrupted Gulf Coast oil production and refining, 20.8 million barrels were released to alleviate shortages.

Beyond emergency responses, the SPR has occasionally been tapped for economic reasons, particularly during election periods when fuel prices become a focal point for voters. In 2000, facing rising gasoline prices during an election year, President Bill Clinton authorized the release of 30 million barrels in a swap arrangement to increase supply and temper prices. Critics argued this move was politically motivated to bolster public approval.

More recently, in 2022, President Joe Biden announced the release of 180 million barrels—the largest drawdown in SPR history—to combat soaring gasoline prices exacerbated by global events, including Russia's invasion of Ukraine. This action reduced the reserve to its lowest level since the 1980s. While intended to provide consumer relief, opponents contended that the timing, ahead of midterm elections, suggested a political motive to influence voter sentiment.

The SPR's use as a tool for market stabilization during election seasons underscores the complex interplay between energy policy and politics. While its primary purpose remains to safeguard against severe supply disruptions, strategic releases have been employed to address economic concerns that hold significant sway over the electorate. This practice, however, raises debates about the appropriate use of the reserve, balancing immediate economic relief against the imperative of maintaining readiness for genuine emergencies.

The SPR serves as a critical component of U.S. energy security, designed to buffer against supply shocks. Its deployment during election periods to mitigate high fuel prices highlights the political dimensions of energy management, reflecting the ongoing debate over how best to utilize this strategic asset in alignment with both national security interests and economic considerations.

France and China have demonstrated the strategic benefits of embracing nuclear energy, particularly for nations with limited domestic oil reserves. France, with minimal oil and gas resources, committed to nuclear power in the 1970s as part of its energy independence strategy. Today, nuclear energy accounts for approximately 70% of its electricity, the highest percentage globally. This reliance on nuclear energy has allowed France to maintain a stable, low-carbon energy supply while shielding its economy from volatile fossil fuel markets. Additionally, the country's advanced nuclear technology and expertise make it a leading exporter of electricity to neighboring countries.

China, while rich in coal, has limited oil and gas reserves relative to its energy needs. Recognizing the environmental and geopolitical risks of overreliance on coal and foreign oil, China has aggressively expanded its nuclear program. It currently operates dozens of reactors, with many more under construction, positioning itself as a global leader in nuclear energy development. By diversifying its energy mix and reducing its carbon footprint, China has secured a more stable energy future while reducing dependence on foreign oil.

Germany, by contrast, pursued a different path. Following the Fukushima disaster in 2011, Germany initiated its "Energiewende" (energy transition), shutting down its nuclear plants and heavily investing in wind and solar energy. However, this decision left the country vulnerable. Renewables, while environmentally friendly, are intermittent and require backup from fossil fuels. With its nuclear plants offline, Germany became increasingly dependent on Russian natural gas to stabilize its grid.

The reliance on Russian energy proved disastrous when geopolitical tensions led to embargoes on Russian oil and gas. Without adequate nuclear power or domestic fossil fuel resources, Germany now faces energy shortages and skyrocketing prices. The contrast between these approaches highlights the importance of balanced, long-term energy strategies in ensuring both sustainability and security.

France and China have demonstrated the strategic benefits of embracing nuclear energy, particularly for nations with limited domestic oil reserves. France, with minimal oil and gas resources, committed to nuclear power in the 1970s as part of its energy independence strategy. Today, nuclear energy accounts for approximately 70% of its electricity, the highest percentage globally. This reliance on nuclear energy has allowed France to maintain a stable, low-carbon energy supply while shielding its economy from volatile fossil fuel markets. Additionally, the country's advanced nuclear technology and expertise make it a leading exporter of electricity to neighboring countries.

China, while rich in coal, has limited oil and gas reserves relative to its energy needs. Recognizing the environmental and geopolitical risks of overreliance on coal and foreign oil, China has aggressively expanded its nuclear program. It currently operates dozens of reactors, with many more under construction, positioning itself as a global leader in nuclear energy development. By diversifying its energy mix and reducing its carbon footprint, China has secured a more stable energy future while reducing dependence on foreign oil.

Germany, by contrast, pursued a different path. Following the Fukushima disaster in 2011, Germany initiated its "Energiewende" (energy transition), shutting down its nuclear plants and heavily investing in wind and solar energy. However, this decision left the country vulnerable. Renewables, while environmentally friendly, are intermittent and require backup from fossil fuels. With its nuclear plants offline, Germany became increasingly dependent on Russian natural gas to stabilize its grid.

The reliance on Russian energy proved disastrous when geopolitical tensions led to embargoes on Russian oil and gas. Without adequate nuclear power or domestic fossil fuel resources, Germany now faces energy shortages and skyrocketing prices. The contrast between these approaches highlights the importance of balanced, long-term energy strategies in ensuring both sustainability and security.

I specialize in long-format discussions because I believe that meaningful topics deserve in-depth exploration, even if most people prefer quick, to-the-point answers. That’s just not my style. If you’re considering a change in who manages your investments or hiring an advisor for the first time, the best way to get to know me is by attending one of our casual cocktail conversations. These relaxed events give you the chance to understand my approach, ask questions, and decide if we’re the right fit.